QDRO LAW
Qualified Domestic Relations Order Attorneys in Arizona
Taking a Closer Look at Qualified Domestic Relations Orders
A “Qualified Domestic Relations Order” (QDRO) serves as a legal decree in matters of domestic relations, which acknowledges or bestows upon an “alternate payee” the entitlement to part or all of the retirement plan benefits due to a plan participant. This order is comprehensive, detailing specific information and adhering to strict criteria to ensure the alternate payee’s rights are clearly defined and protected within the scope of a retirement plan.
Below are some of the ways our QDRO Lawyers can help you.
Private Pension Plans (Defined Benefit Plans)
You’ve probably heard of ERISA, but have tried to skirt the issue if at all possible. ERISA is the body of federal law that governs pension plans provided by many private employers. The term “Qualified Domestic Relations Order” (QDRO) stems from the concept that employers must conform their pension plans to ERISA in order for the plans to qualify for various tax provisions. This is where the deft hand of an experienced QDRO attorney comes in. We can guide parties through the process of putting together a document that will properly divide a private pension plan (otherwise known as a defined benefit plan). This can be done before or after the employee spouse retires, and there are various forms of order that can be adjusted based on the agreement and circumstances of the parties. Whether the QDRO is needed for marital property rights (which is most common), or for child support or spousal maintenance arrearages, the QDRO attorney will help you consider everything you have already thought of and some items you may not have, such as death benefits for the former spouse (whether before or after retirement), early retirement subsidies, and processing the order as efficiently as possible.
401(k) Plans (ERISA Defined Contribution Plans)
401(k) plans, like private pension plans, are ERISA-qualified retirement assets that will generally require a QDRO in order to divide them. 401(k) plans are one of the most common forms of defined contribution plans. Though there are not as many moving pieces with a 401(k) plan as with a pension plan, a careful analysis of plan statements is often needed to evaluate the effect of premarital separate interest, withdrawals, loans, and post-marital contributions. It is also crucial to examine the tax status of the contributions to the account, as more and more 401(k)s may feature a ROTH component these days. 403(b), 401(a), and 457(b) plans are some of the other defined contribution plans that may require a similar analysis. While these plans will likely be discussed during mediation or at trial, even if your divorce decree (or decree of annulment or legal separation) says the accounts need to be divided, a QDRO attorney will need to prepare the corresponding orders to effectuate the terms of the decree.
IRAs
An IRA is another type of defined contribution plan, but is definitively not an ERISA-qualified plan. Ultimately, this means that if you or your family law attorney consult with a QDRO attorney prior to the entry of a consent decree in your case, the QDRO attorney may be able to help save some cost and draft specific language to place directly into the decree to effectuate the division of the IRA (Traditional, ROTH, SEP, Rollover, or otherwise). However, if the ink has already dried on your decree, a QDRO attorney will likely need to draft a Clarifying Order (similar in some respects to a QDRO) in order to allow an IRA custodian to divide the IRA incident to the divorce. The purpose for this distinction is the same purpose as drafting a QDRO for 401(k)s – avoid the impact of penalties and tax consequences that may otherwise be assessed to a transfer of funds following a divorce.
Civil Service Retirement System and Federal Employees Retirement System
Federal employees that are not in the military are almost universally participants in the Federal Employees Retirement System (FERS), unless the employee began prior to 1987, when FERS replaced its predecessor, the Civil Service Retirement System (CSRS). It is important to know the difference between these two plans and how they interact with social security, as that can have a significant impact on the division of these valuable pension assets. FERS and CSRS are both managed by the Office of Personnel Management (OPM), which reviews the dividing orders that are submitted. In this case, the orders are not referred to as QDROs, but rather as Court Orders Acceptable for Processing (COAPs). There are various issues that are utterly essential for your QDRO attorney to understand when it comes to federal civilian plans, not the least of which is the former spouse’s survivor annuity. PLEASE contact a QDRO attorney on this specific issue BEFORE you file a Consent Decree or attend trial.
Thrift Savings Plan
If you’ve ever wondered whether government employees have a 401(k) plan, the answer is “no, but they do have a Thrift Savings Plan (TSP), which is very similar”. This plan was established in 1986, just before the rollout of the Federal Employees Retirement System (FERS). Whereas members of FERS’ predecessor, CSRS, were intended to be entirely provided for in retirement by their pension alone, the introduction of the TSP and FERS led to a paradigm shift, in which FERS employees were provided for by a trio of the FERS pension, TSP, and social security. This doesn’t mean that CSRS employees haven’t necessarily taken advantage of the TSP, however. In addition, many military members have a TSP. Standard considerations present in dividing most defined contribution plans are to be reviewed when dividing a TSP, including premarital separate interest and loan balances. These orders are also not referred to as QDROs (as the TSP plan isn’t ERISA-qualified), but rather as Retirement Benefit Court Orders (RBCOs).
Military Retirement Plan
Federal employees that are not in the military are almost universally participants in the Federal Employees Retirement System (FERS), unless the employee began prior to 1987, when FERS replaced its predecessor, the Civil Service Retirement System (CSRS). It is important to know the difference between these two plans and how they interact with social security, as that can have a significant impact on the division of these valuable pension assets. FERS and CSRS are both managed by the Office of Personnel Management (OPM), which reviews the dividing orders that are submitted. In this case, the orders are not referred to as QDROs, but rather as Court Orders Acceptable for Processing (COAPs). There are various issues that are utterly essential for your QDRO attorney to understand when it comes to federal civilian plans, not the least of which is the former spouse’s survivor annuity. PLEASE contact a QDRO attorney on this specific issue BEFORE you file a Consent Decree or attend trial.
Arizona State Retirement System
There are many Arizona State Retirement System (ASRS) participants in our state. ASRS is a defined benefit plan, or pension, that is not ERISA-qualified like private employer pension plans. There are many idiosyncrasies associated with the ASRS plan that your QDRO attorney should be very familiar with, including how the plan handles a reversionary interest in the event of a former spouse predeceasing a member after the member has retired. The QDRO attorney must consider both pre-retirement and post-retirement death benefits, purchased retirement credits, and potential withdrawal from the system by participants. Recent legislative changes also have continuing ripple effects on the content, process, and the form that must be followed in order to sufficiently comply with ASRS’ current interpretation of those legislative terms. Feel free to reach out to our team for any questions about HB2433 to get clarification about these changes.
Public Safety Personnel Retirement System
Similar to ASRS, the Public Safety Personnel Retirement System (PSPRS) pension plan is not governed by ERISA. The plan also administrates the Correction Officers Retirement Plan (CORP) and Elected Officials Retirement Plan (EORP). In addition to being subject to the new legislation contained in HB2433, there are many other issues that need to be properly understood by participants and alternate payees when it comes to potential division of the PSPRS pension. There will often be accompanying 457(b) and other deferred compensation plans, but understanding attempts to temporarily withdraw from the system (and preventing members from thwarting alternate payees in this fashion), realizing the effects that Koelsch and Kelly offsets may have on the plan, and properly categorizing DROP so as to allow parties to comprehend the intricacies of the public safety plan are just the tip of the iceberg in this case. Please let us know if you have questions about the ramifications of dividing a PSPRS plan in your matter.
City of Phoenix Employees Retirement System
The City of Phoenix Employees Retirement System (COPERS) plan is also a pension not governed by ERISA. Interestingly, COPERS is an extremely unique plan in that it is a government plan that allows for potential separate interest orders to be drafted (provided the circumstances warrant it – most government plans only allow for shared interest orders). This is another pension plan that is generally going to be accompanied by the participant also having a defined contribution account (often a deferred compensation plan). Both the pension and defined contribution plans will need to be carefully evaluated and explained by your QDRO attorney.
Out-of-State Pension Plans
It is very possible that you or your spouse/former spouse may have moved here after accruing a pension from another state. Each state, county, and city plan from a jurisdiction outside of Arizona will have individualized issues and requirements in play that may not be found in any of the commonly encountered Arizona plans. Whether there are special provisions regarding death benefits, specialized processes or forms required, or if we have to specifically work with attorneys in another state to ensure that any drafted orders are properly and timely filed, we have dealt with dozens of other states, including (but not limited to) California, New York, Illinois, Washington, Nevada, Utah, Alaska, and many others. A careful and experienced QDRO attorney will be able to help you with any out-of-state pension plans.
Present-Day Valuations
While the vast majority of divorce cases will feature the division of existing pensions, this methodology is actually not preferred, if circumstances permit. Courts in Arizona have expressed a preference for a present-day valuation to be performed and an alternate payee’s interest paid out of offsetting assets (if they exist) so that the pension doesn’t need to be divided. This, of course, may not always be possible. However, if allowed by assets in the parties’ names and/or ordered by the court, a careful look at tiered interest rates as constantly updated by the Pension Benefit Guarantee Corporation (PBGC) under IRC 417(e), cost-of living adjustments, and a current authoritative mortality table can allow for pensions to be valued and carefully offset with other retirement or non-retirement assets. Alternatively, while an offset of this effect may not have been ordered or agreed to yet, your QDRO attorney can perform a present-day valuation to contextualize an appropriate offer of settlement. Please call us to discuss further.
Stock and Executive Plans
There is no shortage of various executive and closely-held plans, restricted stock units (RSUs), stock options, ESOP plans, and abounding questions regarding these less common assets and the effect a division may have on them, let alone what the appropriate methodology is for doing so. A well-rounded and competent QDRO attorney will be able to work with any plan administrator to derive the necessary information so that calculations can be completed and sufficiently explained to parties with these assets. A couple of important things to remember are that executive plans may not be subject to ERISA and that various stock awards may be treated differently, depending on the plan and grant documents. Tax treatment is also an extremely important element that will need to be hammered out in many stock division situations. Let us know if you have further questions about these assets.
Our QDRO Law Attorneys
Numerous financial institutions in Arizona mandate the involvement of an attorney for the preparation of QDROs. Even if your institution does not require one, engaging with a seasoned attorney is advisable to ensure thorough consideration of all your legal options. Whether you’re the recipient wanting to guarantee the order encompasses everything you’re entitled to, or you’re the contributor looking to safeguard your rights, compliance with both federal and state laws is essential for the validity of any QDRO. Consulting with a reputable QDRO attorney in Arizona is a prudent measure to ensure your QDRO receives judicial approval.
KEVIN O’BRIEN II, B.A., J.D.
Kevin O’Brien holds an undergraduate degree in strategic intelligence from Patrick Henry College and a Juris Doctor from Arizona State University. He passed the bar during his final year of law school. Initially drawn to the business sector, Kevin found his true calling in helping individuals navigate one of life’s most challenging moments—divorce. He now specializes exclusively in the preparation of Qualified Domestic Relations Orders (QDROs), handling the division of various retirement plans such as private pensions, military retired pay, multiple state and private retirement systems, IRAs, and a variety of investment accounts.